Tuesday, September 07, 2004

Talk about life catching up to speculation! A theme of late on this site has been the disintegration of the Telephony business model under the onslaught of bits—especially as shaped by disruptive nature of IP protocols. (See blog on Skype, and the On Background article: The Road to Innovation is Open) One bit of speculation was the possibility (probability?) that video would go the same way. Here is the latest gust in that gathering storm: Tivo, Netflix Close to Internet Movie Deal. It's a short little article but be not deceived. The story is huge.

As both a TiVo owner and a Netflix subscriber let me say that I, for one, would welcome this with open arms. Between these two services I watch a lot less boring TV than I ever have. I never watch ads. (Just fast forward through the ads using your handy TiVo clicker.) I never watch anything just because its what's on when I run out of steam. (I've got a Netflix movie or a backlog of interesting shows recorded on the TiVo) I watch the movies I want and feel no need to upgrade my cable to all those extra channels (My wife and I have been on a Netflix fueled classic documentaries kick this summer inspired by seeing the still quite good "Louisiana Story." Our own, custom-built channel.)

By all that I only mean to say: this can be successful, very successful. TiVo is the leading maker of DVR's and no one has been able to match its user interface. Netflix has rocked the Blockbuster world and inspired copycats everywhere. These are both top-of-their-category enterprises with hundreds of thousands of customers that are fanatically loyal. Merging the two is sure to power a surge for both.

But business aside (and the stocks of both companies have jumped) consider the implications for cable companies. All that they have going for them that sustains their 30-40 per cent profit margin (See "There's Gold in Them Bills!" ) is their monopoly control of their regional coaxial networks. The content they sell belongs to others. If you can go straight to the source and get it for cheaper—or even if you pay the same amount but get it when you want it and only the exact movies you want, wouldn't you go for it? (I know that even on premium channels that I think are decent I would never watch any real percentage of the total that I "pay for.") Other deals have had a hint of this--particularly a recently announced Starz-RealNetworks deal. But that would be way too technical for most (hey, for me anyway!) and would require a recent computer (not cheap) and a huge hard drive. The interface would have to be maddening. But TiVo is as smooth as silk. Folks whose VCR has blinked 12:00 since they bought it in 1992 use TiVo and easily record the latest season of "Charmed." It has the huge hard drive. It has the nice broadband connection. It is really pretty cheap; certainly a lot cheaper than a tricked out media computer. It will be no sweat for TiVo to add this service and make it easy to use. It's just a new top-level menu and the user's well-established selection and search habits will do the rest.

TiVo has been desperately trying to court the cable companies for years. They would like to be in your settop box today. TiVo has been peddleing those nifty boxes for years and suffering the slings and arrows of assorted analysts for their failure to close a deal with the cables. The cable companies could have had this innovative add-on service years ago. But the cablecos have been unwilling to share the revenue stream and prefered to put off utilizing DVRs until they could slap together their own version. Cox started offering their only late this summer.

But now may prove to be too late.

You thought Florida had experienced some storms. You just wait.

Cox might soon have better things to worry about than the local issue of Lafayette's fiber. Maybe LUS could make a deal with TiVo to install their linux-based settop boxes and thereby set up a smooth transition from the cable model to a content-provider based model which will eventually require a computer-based video machine. And there is no cheaper media computer than the TiVo.

Wanna really sweeten the deal for Lafayette? Notice that TiVo is based on Linux. 'Spose you could install a nice X-11-like interface in a walled off partion and use the TV screen for a display? What Digital Divide? Just as fast as that every house that had inexpensive "cable" would have an "ok" computer with full internet connectivity. Slap on a little "open office" applications and a browser and off you go. At a price that would be unheard of.